Sunday, January 31, 2010

Google CEO Eric Schmidt confirmed the company's position with respect to China and said its engineers have made the necessary fixes to prevent future attacks on its systems.

Speaking on the company's quarterly earnings call Thursday evening, Schmidt was referring to the widely publicized attack on Google's data that was traced back to China. Schmidt also talked up Google's new Nexus One phone, as well as the company's plans to push further into the enterprise and advance its efforts in display advertising.

He described Google's reaction to the attacks, including a refusal to cooperate with Chinese government censorship. "We believe we've made the necessary technical changes to prevent such a future attack," Schmidt said on the investor call. "We discovered in the course of that, a perhaps related perhaps unrelated monitoring of human rights activists, which we disclosed, in the spirit that people would be aware that this may be occurring. For those reasons and other reasons, [we made] a decision for Google to no longer be willing to apply the censorship rules in China."

Google made a dramatic claim last week that it may pull back from China's market because of Chinese government censorship. However, while that claim has led to conversations with the Chinese government, Schmidt said that Google continues to do business in China.

"We continue to follow their laws; we continue to offer censored results, but at a reasonably short time from now we will be making some changes there," he said. "We've made a strong statement that we wished to remain in China. We like the Chinese people, we like our Chinese employees, we like the business opportunities, but we'd like to do that on somewhat different terms we have but we remain quite committed to being there."

U.S. Secretary of State Hillary Clinton yesterday endorsed Google's stance, urging the Chinese government to ease restrictions.

"Countries that restrict free access to information or violate the basic rights of Internet users risk walling themselves off from the progress of the next century," Clinton said in a speech on Thursday. "Now, the United States and China have different views on this issue, and we intend to address those differences candidly and consistently in the context of our positive, cooperative, and comprehensive relationship."

Craig Mundie, chief research and strategy officer at Microsoft, praised Clinton's speech, saying in a blog posting that "many Internet policy challenges require us to look at issues from a 'supra-national' perspective."

Foreign Ministry spokesperson Ma Zhaoxu today criticized Clinton's comments. In a statement released on the Chinese Ministry's Web site, Zhaoxu suggested Clinton's remarks and Google's threats could weaken ties between the two countries.

"China's Internet is open. China is a country with the most vibrant Internet development," Zhaoxu said in the statement. Zhaoxu added that China has 384 million Internet users, 3.68 million Web sites and 180 million blogs. "China's Constitution guarantees people's freedom of speech," Zhaoxu added. "It is China's consistent policy to promote the development of Internet. China has its own national conditions and cultural traditions. It supervises Internet according to law, which is in parallel with the international practice."

The issue of censorship is likely to remain a polarizing one between the two countries. Microsoft CEO Steve Ballmer last week maintained that Microsoft will continue to do business in China shortly after Google suggested it might withdraw.

Meanwhile, Google reported revenues of $6.7 billion, representing a 17 percent increase in the fourth quarter of 2009 compared with the same period in 2008. Google's shares were trading down more than three percent mid-day on Friday because the company's $2 billion profit fell short of expectations of $2.1 billion.

While Google's traditional search advertising remained the catalyst for revenues, Schmidt indicated on the call that the company will continue its push into the display ad business. Schmidt emphasized Google's objective to grow its enterprise business through its cloud computing initiatives and mobile computing efforts. He also made a plug for Chrome OS, Google's operating system in the cloud.

"We have quite a healthy enterprise business that's going to grow quite rapidly over the next few years as people move from the older legacy PC-centric, traditional operating system model, to the new Web-based application model, and the trend there is everyone is moving there and we are going to be one of the leaders there," Schmidt said.

Analysts questioned Google's strategy with the Nexus One, the company's own branded phone based on its Android platform launched earlier this month, a move that puts it in competition with its partners.

"What the Nexus One is really about is a new way of buying a phone, and the Nexus One is simply the first of a series of examples where you can essentially purchase a phone online from one or multiple manufacturers, self-provision and have it just work," Schmidt said.

"We think that's a natural evolution of a particularly model; it does not exclude the other models," he added. "I think it's compatible with them, in the sense that the retail model will continue to be more successful. So far, our partners have understood that message and they have been okay with it."